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Broker's take: UOB Kay Hian initiates coverage on Penguin with 'buy', S$0.85 target price

UOB Kay Hian has initiated coverage on Penguin International Limited, which builds and owns niche high-speed aluminium craft with a "buy" call and a target price of S$0.85, citing that the company is backed by favourable industry trends.

As at 2.25pm, Penguin shares were trading up 2.5 Singapore cents or 4 per cent at 64.5 cents on 1.4 million shares changing hands.

Penguin is also involved in the business of providing passenger ferry charter services, vessel maintenance, air charter services, as well as a tour travel business.

UOB Kay Hian analysts Llelleythan Tan and John Cheong said: "Penguin is set to enjoy strong earnings per share (EPS) growth of 42.9 per cent for 2019, backed by a healthy delivery pipeline and growing demand for its new products in the fields of fire fighting and renewable energy."

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Penguin also has a strong balance sheet, with a net cash position of S$47.9 million or 35.1 per cent of its market cap in Q2 FY2019. The net cash position of the company has also been growing steadily since 2017. 

The counter is also trading below its historical average. As at Tuesday's closing price of 62 Singapore cents, shares traded at 5.6 times forward price-to-earnings, below its long-term average of 7.6 times.

Penguin stands to benefit from piracy issues in Nigeria - its biggest market, which contributes 40 per cent to its revenue, and low transportation costs of crewboats for oil and gas (O&G) players, UOB Kay Hian said.

In Singapore, the company has been gaining market share as more competitors have exited the market.

The analysts noted: "Taking into account the favourable outlook in both the shipbuilding and chartering segments, we believe the strong demand for Flex vessels, growing pipeline of build-to-order orders and rising recurring chartering revenue will push revenue and net profit higher for 2019-21."

Share price catalysts for Penguin include a spike in oil prices and a surge in vessel sales and orders, the brokerage said.

UOB Kay Hian's report is prepared under the Research Talent Development Grant Scheme where the Monetary Authority of Singapore provides co-funding to groom research talent to initiate research coverage primarily of mid-small cap Singapore Exchange listed companies.

Other research houses covering Penguin include CGS-CIMB, which has an "add" recommendation and target price of 72 Singapore cents, and Phillip Securities, which has a "buy" call with a target price of 61 Singapore cents.